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Boulder municipalization: Staff recommends proceeding with creation of city utility

Xcel: Not clear how city utility would be 'financially viable'

By Erica Meltzer, Camera Staff Writer

Posted:
07/18/2013 01:56:05 PM MDT

Updated:
07/18/2013 10:26:28 PM MDT

An Xcel Energy substation sits behind chain-linked fence at 75th Street and Lookout Road in Gunbarrel. The station is one of two in unincorporated Boulder County that the city of Boulder plans to acquire should it establish a city-run energy utility. (Cliff Grassmick / Camera file photo)

Boulder should move forward with creating a municipal electric utility and begin negotiations to acquire Xcel Energy's local distribution system -- through condemnation if necessary, city officials recommend in a report to the City Council released Thursday.

New analysis by city staff narrowed the range of options under which a municipal utility would be likely to offer lower rates than Xcel over a 20-year period, according to the report. Higher than expected wind and natural gas prices and system acquisition costs all could push rates above the standard set by the City Council, though most options would meet the charter requirement of offering similar or lower rates on "Day 1."

However, Boulder officials said the new modeling represents a best-case scenario for Xcel and a worst-case scenario for the city, with rate differences of a few cents or even less than a cent per kilowatt hour.

"It will be up to the community to decide whether they want to pay cents more per kilowatt hour for these other options," Boulder spokeswoman Sarah Huntley said.

Xcel Energy spokeswoman Michelle Aguayo said the company needed six weeks to reconstruct Boulder's modeling the first time around and will not be able to develop an informed critique of the new report before the City Council votes on the matter -- unless the city releases all of its information.

However, she questioned how Boulder could accommodate so many risks and still determine that municipalization is feasible.

"It does appear that the city has updated and revised its analysis to address some of the deficiencies and issues we were able to identify in the February study," Aguayo said. "However, it is not at all clear how those issues could be corrected and still obtain results that conclude that the municipal utility would be financially viable."

The City Council is scheduled to discuss whether to move forward at a Tuesday study session dedicated to municipalization issues. An independent reviewer who was hired to examine the city's analysis will make his presentation at that meeting.

Tuesday's meeting will be followed by a special meeting Wednesday at which the council is scheduled to take an initial vote on determining that a city utility would meet the charter requirements and that the city should begin condemnation proceedings against Xcel.

At that meeting, City Council members also will discuss alternative ballot measures that could compete with a citizen-driven charter amendment that would require a vote on debt limits for a future utility and allow affected residents in unincorporated Boulder County to vote in that election.

The city-backed charter amendment likely will ask voters to approve a debt limit for acquisition, but would not constrain future debt.

A second vote on whether to proceed with municipalization and a public hearing is scheduled for Aug. 6.

'Intentionally stressed'

In a memo to the council released Thursday, Boulder officials say that even though new modeling shows that costs could be higher in some scenarios, there are still enough benefits to a locally controlled utility that it is worth moving forward.

"When examining the challenges and opportunities qualitatively, it is clear that a local electric utility would be better positioned than Xcel to adapt to rapidly changing industry and market conditions," the memo says. "A local utility would be able to respond with flexibility, timeliness and clarity about Boulder's specific needs and goals."

The memo said a city-run utility would need to move cautiously in the early years, but a city utility should be able to more than double the use of renewable energy, make investments to improve reliability, offer energy efficiency and solar incentives that meet or exceed those offered by Xcel and establish a foundation for incorporating new technology at rates similar to Xcel's.

The city's modeling was "intentionally stressed" to look at what would happen if several different factors were less favorable for the city's case, the memo said.

"This was done to address concerns that the initial analysis was overly optimistic and help identify the point at which a local electric utility would be unable to perform as well or better than Xcel," the memo said.

City officials also believe many of the risks can be mitigated.

For example, if stranded costs come in higher than expected, the city could opt to buy power from Xcel for a number of years to reduce that liability. Stranded costs are meant to compensate the utility for past investments it made in power generation to supply the city of Boulder.

The city hopes to have a decision from the Federal Energy Regulatory Commission on that issue before a possible second vote on condemnation Aug. 6.

The new modeling did show few options that offered lower average rates than Xcel Energy over a 20-year period.

With acquisition costs of around $150 million, a "low cost" option that would offer 30 percent wind and 43.6 percent renewable energy in 2017, a "low cost, 50 percent wind" option that offers 60.2 percent renewables and an option that maximizes local generation all compare favorably to Xcel, with rates slightly lower over the long term in the modeling.

A "no coal" option that immediately eliminates the fossil fuel would be about a half-cent per kilowatt hour higher than Xcel over a 20-year period.

The comparison is not with actual rates, but with projected future rates for both the city and Xcel.

However, with acquisition costs of $214 million, only the "low cost" and "low cost, 50 percent wind" options are lower. The "no coal" option is higher by almost a cent per kilowatt hour.

Once acquisition costs reach $277.5 million, all the options appear likely to require higher rates than Xcel, though all except the "no coal" option are within a cent per kilowatt hour.

'Unlikely that everything is going to go wrong'

Boulder Mayor Matt Appelbaum said he's withholding judgment until he hears from the independent reviewer, but the new modeling should not be seen as pessimistic.

"What this shows is that even under a worst-case scenario, we have some headroom," he said. "That's very important because it's extremely unlikely that everything is going to go wrong."

A task force that aimed to find areas of cooperation between Xcel Energy and Boulder that would achieve the city's goals of greener energy without requiring a complete separation did not produce any new partnerships that would give Boulder more control over its energy sources, though it did result in proposals for new renewable energy products and services.

Huntley, the Boulder spokeswoman, said the city is interested in learning more about those products and services, but officials do not want to delay the municipalization process while those discussions continue.

Boulder Chamber of Commerce CEO John Tayer, who served on the task force, said he hopes both City Council members and the community take the proposal seriously and look for ways to cooperate with Xcel instead of breaking away.

Sam Weaver, a board member of Clean Energy Action and the city's Planning Board, as well as president of Cool Energy, a waste-heat recovery company, also served on the task force. Weaver had been more hopeful that Xcel would consider some sort of partnership with Boulder, but he said the task force process should form the basis for ongoing dialogue and cooperation with Xcel.

'Case is very strong'

Environmental activists called the city report encouraging.

"With what we're hearing, I think the case is very strong for moving toward condemnation," said John Spitzer, a Boulder environmental activist. "Particularly starting now, the low-cost option is the best way to go, and that involves working with Xcel over the next five years to avoid stranded costs."

Spitzer said he is speaking for himself, and his view may be controversial among activists who want the city to move more quickly to get coal out of the mix. However, keeping initial costs low is important to widespread community support for the plan, he said.

Ken Regelson, a longtime advocate for municipalization, said the city did far more than it was required to do to look at both the opportunities and the risks of a Boulder utility.

"Can every risk be covered?" he asked. "Of course not. But the biggest risk with Xcel is we're stuck paying for their bad investments. My children and my children's children deserve better."

But former Boulder Mayor Bob Greenlee, who writes a column for the Camera, said he believes the city set out to make the case for municipalization, and he remains skeptical of the modeling. More importantly, he doesn't believe Boulder can make a larger difference in stopping climate change.

"It may make some minor difference locally, but when you look at the plans that are already in place with Xcel, I don't think it will make any difference," he said. "All this coal that is supposed to be saved at the Comanche plant in Pueblo will be shipped to India and China.

"From a worldwide perspective, it's not going to make a difference at all."

Appelbaum said that criticism misses the point. He believes that if Boulder fails to create a municipal utility, it will set back by years a statewide debate on how to increase consumer choice in energy supply and use of renewable energy.

"Of course we're not going to move the needle (on climate change)," he said. "Neither will many of the other things that Boulder does. That's not why we do them. We do them to be a model. We do them to start a conversation.

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